Chemicals Update—The Coated IMO 2 MR Segment

Over the last 1-2 years one of the IMO tanker fleet segments which has come to prominence and has been generating increased interest is the coated IMO 2 MRs (MRs defined as vessels between 42-52,000 dwt). Probably the main reason for this surge in popularity has been Western government policies aiming at decarbonizing the economy and reducing greenhouse emissions. But biofuels, often praised for their environmental friendliness and mature technology, require feedstocks which are in short supply in the West and relatively abundant in Asia. Enter the coated IMO 2 MR tanker which has emerged as the main vehicle for transporting these feedstocks from Asia to Europe and (till recently) the US.

The current fleet consists of about 240 ships with a total capacity of 11.6m dwt an average age of just over 11 years. These vessels are run by 75 operators, but the biggest 10 of them control 133 ships (55% of the total) and the biggest one has 33 vessels (13.6% of the total). The coating distribution within this segment is quite even—about 31% marine-/interline, 22% epoxy, 21% mixed coatings and 26% zinc. The latter is popular mostly with methanol producers who carry their own product and on the way back load CPP, easy chemicals, non-heat base oils or palm oil (depending on the trade lane) or just ballast, however in recent years some of these ships have been recoated to marineline which allows for greater flexibility—and to tap into the growing biofuels trade.

With firm biofuels demand set to grow about 40% by 70m mt till 2030, it is no wonder that the newbuilding program in this segment is quite strong. The orderbook is about 11.5% from the current fleet with a total of 27 new ships and 1.3m dwt to be delivered between 2026-28. Among those two-thirds will be marineline-coated ships and rest—epoxy-coated. It is noteworthy that almost 70% of the newbuildings have been ordered by relative newcomers in the chemical tanker trade. Whether they will operate those ships themselves or will time charter them out, is still an open question.

Looking at the scrapping activity, there hasn’t been much of it due to the relatively young age profile of the segment. Since 2020 there have been only 16 ships sent for recycling. Currently there are 14 ships older than 25 years. More than half of them are zinc coated and mostly employed in the methanol trade between Iran and China, which is almost a fully independent market on its own, disconnected from the rest of the chemical tanker market. Unless there are some significant changes in the market such as removing the sanctions on Iran or Russia (which seems highly unlikely at this stage), the expectation is for scrapping to remain low.

The relatively big orderbook and low scrapping activity has led to a higher-than-average fleet growth outlook for this and especially next year, when it is expected to hit 6.4% before slowing down to about 2.3% in 2027. By 2028, however, growth may turn negative unless there are new orders placed in the meantime.

The bright spot of biofuels growing demand will continue to attract interest in the coated IMO 2 MR fleet despite the recent changes in US policy which have turned off the tap on the biofuels flows to the US. As overall trade gets reshaped and new cargo flows appear or existing ones grow, there should be plenty of opportunities for this segment of the tanker fleet. If this holds true, then we may be just in the initial stages of a strong fleet growth in this segment.

By Plamen Aleksandrov, Head of Research, Chemicals, SSY.